How to improve your company credit rating

If you are applying for funding from any sources – see our article on Funding Sources – its vitally important that your credit rating is as good as possible and here are our tips to help.

Paying your invoices on time will of course work in your favour, but many other factors affect your company’s score: the amount of credit your company is already liable for, such as existing loans, credit limits on corporate cards and outstanding amounts, how long your company has existed, and the number of enquiries made on your business’ credit profile are all key data which banks, suppliers, etc... will look at in great detail before accepting your application.

If you are just starting out, you will come against the issue of your company’s lack of history. While this is beyond your control, do resist the temptation to apply for business credit using your personal information as it will most likely harm both your corporate rating and your own: personal and business credit enquiries and financial commitments will be indistinguishable, and they may even affect your personal credit score significantly. It won’t solve your conundrum either, as this practice will prevent your company from building a credit history. So, as frustrating as it may be for the time being, persevere and build up your company’s rating gradually.

When credit suppliers are considering your application, they assess it on the basis of a very detailed report on your company, so it is important that you understand what it includes so that you can improve problematic areas beforehand.

The report will give general information about your company, such as its sales, its gross profit, its working capital and the amount of assets it owns, in one word, an overview of its size. It also gives a detailed history of its directors, including other past and current directorships and failed companies. The latter, as you can imagine, will make any credit supplier more cautious and you may want to resign from certain directorships if you are not really active in order to improve your profile and not appear over-committed.

The report will also reveal whether your company has any CCJs (County Court Judgments) recorded against it, and for which amount. So do try to ensure that your company doesn’t get taken to Court!

A list of your existing credit lines with some suppliers may also show. While, on the one hand, it can demonstrate that you are a trusted business relationship. It is therefore advisable to review your credit limits on a regular basis and make sure that they are suitable for your needs, and to make sure payments are made promptly to terms. Credit suppliers will take a close look at your payment records history. It is not uncommon for companies to go beyond the payment terms agreed with a supplier, but if your company pays its invoices unreasonably late on a regular basis, it will ring alarm bells. If you went through a rough patch at any point in the past but are now doing better, make sure that you pay your bills on time, and you will gradually rebuild your score and show finance providers that you are on the right track. The most recent payments tend to have more impact and weight both in terms of your company credit score and how potential suppliers may interpret the risk.

Always file your accounts promptly, it will be seen as a positive sign. If accounts are overdue then it may leave a suspicion that the figures are poor, or at best that the finances are not sufficiently organized and under control to be audited and filed on time.